The Development of Chinese Telecomm Equipment Companies and China's Industrial Policies – a Model for Emerging Economies?
Numerous studies analysed the development of China’s telecommunication industry and the role of industrial policies, focusing on catch-up processes in relation to internal innovation capabilities, indigenous innovation, knowledge diffusion and strategic alliances. Others have examined the dynamics of the National Innovation System (NIS) in China and how it facilitated economic development and the fundamental role of the Chinese government and its agencies in the catch-up process. The development of China’s indigenous mobile standard TD-SCDMA was extensively analysed as an instrument to facilitate domestic technological capabilities.
While many of these studies illustrate the impact China’s industrial policies on the development of domestic telecommunication equipment suppliers two central aspects seem underdeveloped.
First, while China’s industrial policies were extensive, integrated and foresighted, their initial positive direct results of a domestic industrial base were only short-termed. Second, the long-term positive effects of China’s industrial policies have been unintended, providing domestic equipment suppliers such as Huawei and ZTE with a set of capabilities that go well beyond technological leadership.
This article argues that the specific regulation of the Chinese telecomm equipment market and the character of the initial industrial policies resulted in the creation of a specific development path that enabled firms like Huawei and ZTE to develop focal capabilities for international success while the openness of the industrial policy system allowed the central government to adapt its focus during the catch-up process. The China’s industrial policies had unintended consequences as they were targeting incumbent Chinese SOEs and foreign suppliers through joint-venture mechanisms while at the same time establishing a favourable environment for all Chinese telecommunication equipment suppliers through the reforms of the NIS, various import substitution schemes and the overall focus on economic development.
Following some data on the leading position of Chinese telecommunication equipment suppliers Huawei and ZTE in global technology markets the article elaborates its thesis in two main parts. First, activities of the central government and its various agencies will be examined. The second part focuses on the industry level developments analysing Sino-foreign joint ventures and their limited success. Finally, a look towards Africa will provide insights into the role of Huawei and ZTE in this region and the utilization of their specific capabilities.